Chapter 9

Question 1

List and define the 3 factors that affect the calculation of depreciation?

Answer 1

Cost: Includes purchase price + all costs associated with getting asset to its intended place for intended use
Residual Value: Estimate of what company would get for disposing of asset at the end of its useful life. Not depreciated
Useful Life: period of time asset is expected to be available for use or number of units of output expected from an asset.

Question 2

What are the two steps of the straight line method

Answer 2

• determine depreciable amount (cost - residual value)

- depreciable amount/ useful life

Question 3

What are the 3 manners that derecognition occurs

Answer 3

• at the end of the assets useful life
• prior to end of useful life (damaged, broken, obsolete)
• when the asset is sold

Question 4

what 4 steps must a company preform to derecognize an asset

Answer 4

• update depreciation
• calculate carrying amount
• gain or loss on disposal
• record the disposal

Question 5

What is the journal entry to record the disposal?

Answer 5

Dr: Cash
Dr: Accumulated Depreciation
Cr: Asset
Dr: Loss/ Cr: Gain

Question 6

How does the double diminishing balance method work?

Answer 6

Carrying amount at beginning of year x straight line rate x 2 = depreciation expense

• used on assets where use is greater in early years compared to late years (electronics and machinery)
• does not use residual value

Question 7

How does the units of production method work?

Answer 7

Total depreciable cost/ divided by units of output